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ROTTLUND CO INC
10-Q, 2000-08-14
OPERATIVE BUILDERS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-Q

(Mark One)

/x/	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2000

OR

/ /	TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From                To                

Commission file number 0-20614

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THE ROTTLUND COMPANY, INC.
(Exact name of registrants as specified in its charter)

(651) 638-0500
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

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    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/  No / /

    The number of shares outstanding of the Registrant's common stock, par value $.10 per share, at August 4, 2000 was 5,815,572 shares.

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THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
INDEX

				Page
PART I.		FINANCIAL INFORMATION
Item 1.		Financial Statements
		Consolidated balance sheets—June 30, 2000 and March 31, 2000		3
		Consolidated statements of operations—Three months ended June 30, 2000 and 1999		4
		Consolidated statements of cash flows—Three months ended June 30, 2000 and 1999		5
		Notes to consolidated financial statements		6
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations		7
PART II.		OTHER INFORMATION		10
SIGNATURES				11

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Part I.  Financial Information

Item 1.  Financial Statements

THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES

Consolidated Balance Sheets—Unaudited

As of

				June 30, 2000			March 31, 2000
ASSETS
Cash and cash equivalents				$	1,307,730		$	8,086,761
Escrow and other receivables					2,643,427			2,546,721
Land, development costs and finished lots					45,623,714			47,223,857
Residential housing completed and under construction					40,574,784			30,230,694
Property and equipment, net					814,993			867,459
Deferred financing costs and other assets					12,117,447			9,810,330
				$	103,082,095		$	98,765,823
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
	Revolving credit facility			$	47,460,000		$	21,135,000
	Senior notes payable				0			21,845,474
	Mortgage notes payable				965,000			1,224,200
	Accounts payable				11,706,513			10,784,634
	Accrued liabilities				5,410,291			6,458,688
	Income taxes payable				127,210			158,008
		Total liabilities			65,669,014			61,606,004
Shareholders' equity:
	Preferred stock, $.10 par value, 10,000,000 shares authorized; none issued				—			—
	Common stock, $.10 par value, 40,000,000 shares authorized; issued and outstanding 5,815,572 and 5,804,444 respectively				151,157			146,444
	Paid-in capital				11,946,115			11,950,828
	Retained earnings				25,315,808			25,062,547
		Total shareholders' equity			37,413,081			37,159,820
				$	103,082,095		$	98,765,823

See accompanying notes to consolidated financial statements

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THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES

Consolidated Statements of Operations—Unaudited

				For the Three Months Ended June 30,
				2000			1999
Net sales				$	49,605,068		$	49,586,875
Cost of sales					42,092,645			42,444,005
					7,512,422			7,142,870
Selling, general and administrative expense					5,720,201			6,227,817
Operating income					1,792,221			915,053
Other (income) expense:
	Interest expense				506,219			487,886
	Other income				(156,343	)		(108,589	)
Income before provision for income taxes and extraordinary charge					1,442,346			535,757
Extraordinary loss, net of tax					612,085			0
Provision for income taxes					577,000			220,000
Net income				$	253,261		$	315,757
Diluted earnings per share				$	0.04		$	0.05
Weighted average shares outstanding					5,815,572			5,804,444

See accompanying notes to consolidated financial statements

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THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows—Unaudited

						For the Three Months Ended June 30,
						2000			1999
OPERATING ACTIVITIES:
	Net income before extraordinary charge					$	865,346		$	315,757
	Extraordinary charge						(612,085	)		0
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation					127,423			167,151
		Changes in operating items:
			Escrow and other receivables				(96,706	)		202,977
			Land, development costs and finished lots				1,600,144			(3,496,250	)
			Residential housing completed and under construction				(10,344,089	)		(6,192,321	)
			Deferred financing costs and other assets				(2,307,117	)		(62,038	)
			Accounts payable				921,879			(1,610,677	)
			Accrued liabilities				(1,048,397	)		(1,265,981	)
			Income taxes payable				(30,798	)		(3,834,200	)
				Net cash (used for) operating activities			(10,924,400	)		(15,775,580	)
INVESTING ACTIVITIES:
	Purchase of property and equipment, net						(74,957	)		(54,058	)
FINANCING ACTIVITIES:
	Proceeds from mortgage notes payable						0			24,000
	Repayments of mortgage notes payable						(259,200	)		(319,590	)
	Proceeds from revolving credit facility, net						26,325,000			12,350,000
	Repayment of Senior Notes Payable						(21,845,474	)		(1,182,898	)
		Net cash provided by financing activities					4,220,326			10,871,512
NET DECREASE IN CASH AND CASH EQUIVALENTS							(6,779,031	)		(4,958,127	)
CASH AND CASH EQUIVALENTS:
	Beginning of period						8,086,761			6,557,573
	End of period					$	1,307,730		$	1,599,446
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
	Cash paid for interest, net of amounts capitalized					$	506,219		$	487,886
	Cash paid for income taxes						193,498			4,054,200

See accompanying notes to consolidated financial statements

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THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1.  General

    The consolifated financial statements included herein have been prepared by the Company without audit, in accordance with generally accepted accounting principles, and pursuant to the rules and regulations of the Securities and Exchange Commission. These interim financial statements should be read in conjunction with the consolidated financial statements and notes in the Company's annual report for the year ended March 31, 2000 as filed with the Securities and Exchange Commission. In the opinion of management of the Company, these financial statements contain all adjustments of a normal recurring nature necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented.

    The Company has experienced, and expects to continue to experience significant variability in quarterly net sales and net income. Operating results for the three month period ending June 30, 2000 are not necessarily indicative of the results that may be expected for the year ending March 31, 2001.

Note 2.  Revolving Credit Facility to Bank

    As of June 30, 2000, the Company had a line-of-credit arrangement with a bank totaling $55,000,000, with interest at the bank's prime rate plus .25% (as of June 30, 2000 that rate was 9.75%). Borrowings outstanding at June 30, 2000 were $47,460,000 under this arrangement. In addition, there were $1,967,000 letters of credit outstanding under this arrangement at June 30, 2000. As of June 30, 2000 the Company was in compliance with debt covenants under this revolving facility.

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Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

    The following table sets forth certain information regarding the Company's operations for the periods indicated.

Backlog

    The following table sets forth the Company's backlog as of the dates indicated:

    As a cautionary note to investors, certain matters discussed in this management discussion and analysis are forward looking statements within the meaning of the Private Securities Litigation Act of 1995. Such matters involve risks and uncertainties, including changes in economic conditions and interest rates, increases in raw material and labor costs, weather conditions, and general competitive factors that may cause actual results to differ materially.

Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999

    Revenues for the three months ended June 30, 2000, were nearly the same at $49.6 million for the comparable period of 1999. The number of homes closed by the Company decreased by 1.7% to 297 units for the three months ended June 30, 2000, from 302 units during the same period in 1999. The average selling price of a home increased 1.7% to $167,000, during the three months ended June 30,

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2000 from $164,200 for the comparable period in 1999. This increase was due to an overall increase in prices for homes sold by the Company.

    Gross profit increased by 5.6%, to $7.5 million for the three months ended June 30, 2000, from $7.1 million for the comparable period of 1999. Gross profit as a percentage of net sales increased to 15.1% from 14.4% primarily due to higher margin homes closing during the current quarter compared to those closing in the comparable period of 1999.

    Selling, general and administrative expenses decreased by 8.1% to $5.7 million in the three months ended June 30, 2000, from $6.2 million for the comparable period of 1999. This decrease is due to substantially exiting from the Ft Myers and Orlando markets. As a percentage of net sales, selling, general and administrative expense decreased to 11.5% for the three month period ended June 30, 2000, from 12.6% for the same period in 1999.

    Interest expense increased to $506,000 for the three months ended June 30, 2000, from $488,000 for the comparable period in 1999. The increase in interest expense is primarily due to the Company's higher borrowing needs for the three months ended June 30, 2000 compared to the three months ended June 30, 1999. The Company capitalizes certain interest costs for land development and includes such capitalized interest in cost of home sales when the related homes are delivered to purchasers.

    The Company's effective tax rate for the period ending June 30, 2000 was approximately 40%, compared to 41% for the same period ending June 30, 1999 which reflects the federal statutory rate plus state taxes, net of federal income tax benefit.

Liquidity and Capital Resources

    At June 30, 2000, the Company had available cash and cash equivalents of approximately $1,308,000.

    The Company's financing needs depend primarily upon sales volume, asset turnover, land acquisition and inventory balances. In December 1994, the Company issued $25 million of 12.11% Senior Notes payable and in February 1996, the Company issued an additional $10 million of 9.42% Senior Notes payable (collectively referred to as the "Senior Notes"). Proceeds were used to retire certain mortgage notes payable and for working capital purposes. The Senior Notes were paid, in full, on April 21, 2000, including $900,000 in early extinguishment payments.

    The Company has an unsecured revolving credit agreement that provides borrowings of up to $55 million, of which $5 million may be used for letters of credit. Borrowings under this agreement are subject to a borrowing base calculation based on a defined percentage of land, development costs, finished lots and the working capital of the Company. As of June 30, 2000, borrowings under this facility's line of credit totaled $47.5 million, and $5.5 million was available for borrowing under the calculation described above. The Company believes that amounts available under its existing borrowing arrangements (assuming extensions and renewals of debt in the ordinary course of business) and amounts generated from operations will provide funds adequate for its home building activities and debt service.

    As of June 30, 2000 the Company is in compliance with covenants under its revolving credit facility.

    The Company has generally been able to secure financing for its acquisition, development and construction activities, and management believes such arrangements will continue to be available on terms satisfactory to the Company. There can be no assurance, however, that continued financing for land acquisitions will be available or, if available, will be on terms satisfactory to the Company.

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Inflation

    The Company, as well as the homebuilding industry in general, may be adversely affected during periods of high inflation, primarily because of higher land, material and labor costs. In addition, higher mortgage interest rates may significantly affect the affordability of permanent mortgage financing to prospective purchasers. The Company attempts to pass through to its customers any increase in its costs through increased selling prices, and to date, inflation has not had a material adverse effect on the Company's results of operations. However, there is no assurance that inflation will not have a material adverse impact on the Company's future results of operations.

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Part II—Other Information

Items 1 through 5.

    Not applicable.

Item 6.  Exhibits and Reports on Form 8-K.

(a)

Exhibits.  Not applicable.



(b)

Reports on Form 8-K.

The registrant filed no reports on Form 8-K during the three months ended June 30, 2000.

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SIGNATURES

    Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		THE ROTTLUND COMPANY, INC.
Date:  August 8, 2000		By:		David H. Rotter President and Chief Executive Officer
Date:  August 8, 2000		By:		Lawrence B. Shapiro Vice President of Finance Chief Financial Officer (Principal Financial and Accounting Officer)

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THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES INDEX
Part I. Financial Information

Item 1. Financial Statements

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Part II—Other Information

Items 1 through 5.
Item 6. Exhibits and Reports on Form 8-K.

SIGNATURES

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